A Hedger Buys a Futures Contract That Obligates the Owner

question 99

Multiple Choice

A hedger buys a futures contract that obligates the owner to take delivery of 5,000 bushels of wheat at a price of $6.75 per bushel. At expiration the spot price of wheat is $6.80 per bushel. The hedger has:

• A) saved $0.05 per bushel through hedging.
• B) gained peace of mind at a price of $0.05 per bushel.
• C) the opportunity to avoid taking delivery since the price increased.
• D)locked in an effective price of $6.80 per bushel.

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Definitions:

International Business

Commercial transactions that occur across country borders, including trade, investment, and strategic partnerships.

Coupon

A voucher entitling the holder to a discount for a particular product or service.

Mutual Funds

Investment programs funded by shareholders that trade in diversified holdings and are managed by professionals.

Documentary Collection

A financial transaction in which a seller instructs their bank to forward documents related to the export of goods to the buyer's bank with instructions for payment.